Once a prominent name and a trendsetter in the world of fashion, Forever 21 has now filed for bankruptcy for the second time. The brand was so big it was once the trademark for cheap and trendy teen fashion clothes. Then what exactly caused it to go bankrupt? Well, the world of retail is a cruel place, even for the pioneers.
What is Forever 21? Brief Overview
Anyone who is not living under a rock must have heard about Forever 21 at least once in their life. Founded in 1984 by Korean immigrants Jin Sook Chang and Do Won Chang, Forever 21 captured consumer attention with trend-sensitive apparel at highly competitive almost “rock bottom” prices. Their main strategy was about holding limited inventory, so that their customer’s know that the price they are getting now, they will never get it in the future.
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At their peak, the company had more than 800 physical stores and over $4 billion in sales. It employed 43,000 people, operated 800 stores globally and recorded over $4 billion in annual sales, according to court documents.
The Downfall of Forever 21
This king in fashion industry, no longer reigns the fashion game due to toppling competition in the same industry and weak mall traffic. Currently, Forever 21 entered bankruptcy with $1.58 billion in debt, after losing more than $400 million over the last three years. This resulted in many outlets of the brand shutting down and thousands of employees getting laid off due to financial limitations.
It is projected to lose approximately $180 million in 2025, according to documents filed in a Wilmington, Delaware bankruptcy court.
What Went Wrong?
The company blames rising fast fashion brands like Temu and Shein being the main reason. These companies take advantage of duty-free treatment of low-cost packages from China to undermine its pricing power and hence provide the same fashion pieces at even lower rates.
Asian ecommerce powerhouses like Shein and Temu utilise thousands of factories in China to pump out trendy products. Hence, they end up undermining brands like Forever 21 by doing it all much more faster and cheaper.
However, this isn’t the only reason Forever 21 is facing such a massive fallout. It initially started when the strategic misalignment started in the business operations. Due to the massive success of the brand, it started tapping into new sectors too, like cosmetics and menswear. This resulted in opening larger stores and keeping deeper inventory than the original business plan. Having more inventory available in stores removed the urgency and excitement that initially captivated customers. Once this USP was gone, the mall traffic and the hype behind the brand started slowly disappearing too. This, in addition to the financial strain due to the burden of high inventories, only made the losses worse.
This bankruptcy of one of the biggest brands is an important lesson for retailers. A brand must always adapt to competition and must not abandon its core values; otherwise, it must know that nothing is forever.
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